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So essentially they really liked the team working on Magic and are paying millions to, in a sense, employ these people?

• nijiko 12y ago
  pretty much.
• joedavison 12y ago
  Yes, and to let those people deploy their capital profitably for them.
• zaroth 12y ago
  Not even that! Literally the valuation is a figment, especially without knowing the associated terms. $12m at $40m post-money with a 3x participating preferred? Literally all we know is the team has access to $12m in the bank to spend, not on their own salary, but on building a company called Magic. After the $12m is spent they should have a company that is worth $40m. It's a bet that for every $1 the team spends they can create about $3 in value. Which at 5x revenue is to say, they can spend $12m and at the end of the day be cash flow neutral and have about $8m in ARR. Throw in a liquidation preference on that $12m and what you actually have are golden handcuffs and high expectations but the work for this team all lays ahead of them not behind them.